Due Diligence Standards in the USA and the UK - Essay Example

Due diligence standards in the US and the UK Number: Due diligence standards in the US and the UK Due diligence is the examination carried out by investors or their agents into details of a prospective investment of the purchase. The examination entails the corroboration of all substantive facts pertinent to the investment. The quantity of due diligence carried out before a prospective acquisition depends on the worth and value of the potential investment. Due diligence also depends on the relative value of the intellectual property to the transaction.

Due diligence is important for businesses as it centers on the intellectual property assets of the selling company and how the assets are managed. Due diligence also helps in the appraisal of the actual and proper value of the IP in question and the IP-related risks that purchasers may incur further to the business transaction. A seller should look for what he is getting out of the transaction and his duties as a seller. The buyer should look for several aspects in the process of due diligence.

One, the buyer should confirm the validity of the details being provided. In addition, the buyer should ascertain if the IP has any mortgage, information on significant third parties, as well as whether the IP is subject to any litigation and/or infringement suits. The buyer may also need to ask for IP rights and information that may constrain the usage of the IP in question. In the United States, anybody who wishes to have official recognition of their trademark has to register the trademark with the United States patent and trademark office (USPTO).

Once the due diligence comprehensive search is complete, a registration certificate is issued to denote the trademark as a registered trademark. USPTO is responsible for granting and issuing patents and the registration of trademarks. The body is also responsible for disseminating to the general public information on patents and trademarks. In the United Kingdom, trademark and patents registration is the mandate of the United Kingdom intellectual property office (UKIPO). After the process of due diligence is complete, UKIPO holds the trademark for an interlude of 10 years, after which the owner of the trademark has to renew as a means of preserving the rights over the trademark.

Failure to renew the trademark after the stipulated period is taken as a lapse. Due diligence influences competition issues because sensitive, commercial and technical information may be improperly leaked before the transaction is complete. The receiving party may thus be concerned about the intricacy of proving autonomous development if the transaction is not closed. The consequences of the seller not disclosing essential information may force a concerned purchaser to walk away from the transaction.

1 In the case of SCM Corp. v. Xerox Corp., it was held that where a central rival in a certain market obtains a particular patent/s, which, in addition to those patents already owned; afford such a central rival monopoly control in that market will infringe the Sherman antitrust act. The composition of acquisition is regulated by consideration of tax. The lead IP professional must be conscious of the repercussions emerging from any specific organization put at risk IP rights. A business may opt to simply get a record title to IP assets received in an acquisition or amalgamation, or it may opt to sell the newly obtained intangible asset to a third party and obtain a license to use name, depending on the scope of the business activities of the buyer.

2 A well-executed due diligence search may be advantageous to both the buyer and the seller, which may result in long-term associations and trade synergies. IP due diligence offers essential information that is specific to future benefits, economic life and proprietorship rights, and the limitations of the assets; all of which affect the final value. This due diligence is fundamental in the process of valuation. Representations are statements showing the present standing of the business, and warranties guarantee the genuineness of the statements.

Warranties are usually needed to verify the ownership status and validity of unregistered IP rights.3 Misrepresentation can have undesirable consequences if the seller can terminate the transaction. Any condition on material adverse effect may well be assimilated as a provision rather than as a representation. Although an unmet clause would permit a party to walk away, a misrepresentation may as well provide that party with a course of action for damages or claims for indemnification. In the case of IBP Inc. v. Tyson Foods Inc.

, Tyson foods outbid Smithfield Foods in a public sale resulting in a merger of the two Food giants. Tyson sought to abandon the deal prior to closing, holding that IBP dishonestly persuaded Tyson into an amalgamation accord and had contravened its terms. IBP later sued Tyson requesting for specific performance of the amalgamation; an unusual step by a seller and an extraordinary result if a forced closing were established. The Delaware judge approved IBP’s request for specific performance, asserting that Tyson was adequately acquainted with IBP’s inner problems before signing the accord.

The court held that a temporary hiccup in profitability does not essentially result in a material adverse effect where the buyer knew of the recurring nature of the seller’s business.